Guide: What is dropshipping
Have you ever dreamed of creating your own business? What about running an Ecommerce store? If we’re speaking directly to you this sounds familiar, then you’ve probably also wondered where you could source products, how you could safely store them and if it’s possible to manage all the extra business fees and costs. If you were hoping to outsource some of these processes whilst keeping your overhead and starting costs down then you’re in the right place. The answer - dropshipping.
In this Dojo guide, we’ll work to answer all of your dropshipping questions. We’ll also detail how dropshipping beginners can set up online and how you can turn dropshipping from a side hustle to a full-time job. So, what is dropshipping in 2023? It’s time to find out.
Dropshipping explained: Contents and key links
- What is dropshipping?
- What is a dropshipper?
- What is dropshipping for beginners? (how does it work)
- Understanding the retail supply chain
- What is dropshipping business?
- The advantages of dropshipping
- The disadvantages of dropshipping
- Is dropshipping right for you?
What is dropshipping?
In simple terms dropshipping is an order fulfilment method where businesses don’t hold physical stock themselves.
Instead, the business purchases inventory via a wholesaler or a manufacturer to fulfil customer orders if, and when, they’re placed. These products can then be sold via an Ecommerce store or an external website with an online checkout service.
Remember, the key difference between dropshipping and retail business models is that, although you sell products, you don’t personally own or physically stock the goods in the former.
What is a dropshipper?
So if dropshipping is a business model, a dropshipper is an individual or business that procures sales via the dropshipping model.
They rely on wholesalers to fulfil shipping and packaging obligations and instead focus their attention on making sales.
Because of dropshipping’s nature, a dropshipper can run an operation on their own, as a single business owner, or as one which includes employees.
What is dropshipping for beginners, and how does dropshipping work?
Now you understand the meaning of dropshipping, it's time to tackle the question - what is dropshipping for beginners? This step-by-step guide should give you all the tools a beginner needs to start dropshipping.
Firstly, it’s important to note that the dropshipping process will vary between you (the seller) and the third party of your choice, so always check the fine print and seek independent business advice from a trusted provider if you’re unsure on the terms. Every manufacturer and wholesaler operates differently. For example, AliExpress works differently to Alibaba.
So, it’s worth scoping out who will be the right fit for your needs.
How does a basic Ecommerce business operate
Ecommerce businesses will typically utilise dropshipping and generally the standard dropshipping procedure works a bit like this:
- You (the seller) signs an agreement to begin a dropshipping business with the UK dropshipping provider of your choice.
- Your chosen products go live on your Ecommerce platform.
- Customers start to place orders online.
- You receive the order from the customer for your goods. This could be anything from clothes to cookware.
- You forward the customer’s order to the dropshipper. This is so the order can be fulfilled.
- The third-party dropshipper packs and dispatches the customer’s order.
- The customer receives their product in the post. All are satisfactory.
- Customer proactively leaves you a positive review to boost sales (alternatively you can send a review request through providers like Trustpilot or Feefo).
As the seller, you can also personalise and customise the outlined steps including ways for customers to pay. Another example could be organising pre-written thank you messages to be sent to your customers. This is a great method to build trust and increase the likelihood of an improved service score.
Remember that although you’ll be outsourcing certain processes and not holding physical stock - you still own and run your UK dropshipping business. So, how you choose to run this business is ultimately down to you.
Understanding the retail supply chain
In this ‘what is dropshipping’ guide, we’ve briefly mentioned the retail supply chain. Let’s cover exactly what that means.
A retail supply chain just refers to all the processes involved in producing and distributing your products to potential customers. Much like the third-party dropshippers - the retail supply chain differs from business to business. However, you’ll need to understand this process to make sure your dropshipping business can fulfil orders and complete customer sales.
How a dropshipping retail supply chain may look:
- A manufacturer produces products using raw materials.
- A third party distributor (usually a warehouse or wholesaler) purchases these goods from the manufacturer. This is usually done in large quantities.
- A dropshipping business sets up an agreement with the third-party distributor. The former purchases goods from the latter.
- Consumers purchase from the dropshipping business for personal use.
- The dropshipping procedure outlined above takes place.
Now, let’s dive deep into the differences between a manufacturer and a wholesaler.
What is a manufacturer?
A dropshipping manufacturer is an individual or a business that makes certain products. They also may or may not sell these products themselves.
They sell these goods to wholesalers and retailers in bulk. It isn’t very often that a manufacturer sells directly to the consumer.
As someone beginning a dropshipping business, you can purchase products directly from a manufacturer.
However, this usually costs a lot and the reason you wanted to understand dropshipping was to keep unnecessary costs down. So instead, you can purchase the wares from a third party distributor, otherwise known as a wholesaler.
What is a wholesaler?
Wholesalers can act as this third party distributor we’ve talked so much about. They buy products from manufacturers. If you’re purchasing products for your dropship business you’re probably going to be dealing with a wholesaler. This is because wholesalers sometimes sell to retail stores and can also offer dropshipping services.
Traditionally, the seller (you) are responsible for product storage, inventory management and delivering orders. The benefit of dropshipping is that a wholesaler will take care of this for you. By selecting a wholesaler as your dropshipper, they will store your products, arrange delivery and keep tabs on stock for you.
In theory, this means signing up with a wholesaler makes the dropshipping process smooth and cheaper.
What is a dropshipping business summarised
To recap: a UK dropshipping business is a model that outsources stocking, packing and shipping to a third party.
The seller utilising the dropshipping model makes sales while the wholesaler does the hard work. This means there’s more time for marketing and less time worrying about logistics.
Now we’ve covered the basics of what a dropshipping business is, let’s move on to exploring the benefits and setbacks of setting one up.
The advantages of dropshipping
Offering a range of goods procured from different suppliers can have key advantages including scalability, lower starting costs and less deadstock. Let’s explore these in more detail:
A dropshipping business is easy to scale
The beauty of dropshipping is that you rely on someone else to do the hard work for you. For example, if your orders suddenly doubled you wouldn’t have to take on the pressure to pack and deliver double the orders. This is because most of the work will be shouldered by your third-party dropshipper.
Furthermore, you’ll have more time to expand and scale your business instead of worrying about postage and packaging. You can rest easy knowing that the products are being taken care of. For this reason this type of business is somewhat easier to scale than regular online businesses.
Less upfront capital is required to begin
We touched on starting costs in our ‘what is dropshipping?’ introduction - starting a business can be expensive. One key benefit of dropshipping is that you can launch your dream Ecommerce store without too much initial investment or cost.
This is because you don’t need to purchase a product from wholesalers in advance. Instead, you can wait until a customer has committed to buying before sending it to your dropshipper for fulfilment. Compared to opening a brick-and-mortar establishment, there’s less upfront capital required to open an e-commerce store. You’ll be happy to know this means there’s much less risk.
However, when you sign up with a wholesaler you should always read the fine print and double check you’re not required to pay a minimum order fee upfront.
You don’t have to pick a limited range of products
If you’re running a dropshipping UK business, there’s no need to specialise in selling one or two products. Instead, you can list any item your supplier stocks via your online store.
In theory, you could be selling everything from jeans and technology to headwear and camping supplies. Just remember that although this variety will help you attract a wide range of customers to your business, it’s important to understand who your target audience is. You want to sell strategically to make the most profit.
Overheads are low
As we’ve established, running a dropshipping Ecommerce business has the potential to be good for your business bank balance. You won’t need to purchase products, manage inventory or organise postage with shipping companies.
Interestingly, most successful dropshipping companies also don’t have premises. A lot of dropship companies are run remotely from sellers’ homes.
Of course, as you grow you can expect overheads to increase. However, to start with these are likely to be low. Another reason that there could be less risk involved.
The disadvantages of dropshipping
Although the advantages are plentiful, as with anything, there are also disadvantages. Understanding the potential weaknesses and pitfalls of your business model is key in mitigating and identifying potential risks.
Lack of control
With this type of business model, you outsource the majority of your business dealings to a third party. Consequently, you accept that there could be much out of your control. Inventory management, lack of quality in packaging, long delivery wait times and a deterioration in the quality of your product are all points to consider.
You will have to trust your dropshipper implicitly. So do your research! It’s also worth seeing if you can run a trial period with any new suppliers to give yourself time to identify potential issues.
Orders not being streamlined
If you’ve ever placed multiple orders, within a short time frame, with a big Ecommerce site like Asos or Amazon you may have experienced your deliveries arriving on different days in different packages. Partnering with a third-party manufacturer can cause the same outcome for your customers. If your customers order different items, your dropshipper is likely to send these out separately.
While this doesn’t directly impact your business, it may cause your customers some inconvenience and be a reason for them to leave poor reviews.
Missing out on bulk discounts
In the supply chain overview, we outlined how manufacturers sell to wholesalers in bulk. These bulk orders are made because wholesalers receive bulk discounts. This may allow wholesalers to sell to retailers at a reduced price. Retailers can then sell their products to end customers. This is also usually at a reduced price.
However, when we talk about what is dropshipping, we already know that sellers don’t purchase or store inventory in bulk. Instead, the seller usually files individual orders to wholesalers to fulfil.
You are potentially going to miss out on bulk discounts which could cost you more in the long run.
If you’re thinking about embarking on a business journey - you’re not the only one. The global dropshipping industry is expected to reach $557.9 billion (£461.21 billion) by 2025. It’s a lucrative business model and it’s on the rise.
Your Ecommerce business is likely to be in close competition with other businesses, especially if you sell similar products. This is where branding, pricing strategy and selling to a niche can be key in differentiating your Ecommerce business.
Is dropshipping right for you?
Our guide has hopefully provided you with a taster for dropshipping. We’ve covered what is dropshipping, advantages and disadvantages but ultimately it’s up to you to decide - is dropshipping right for you?
Dropshipping might seem like a no-brainer if you’re looking for a side hustle. But you need to know if the business model is right for you and if you want to evolve it into a full-time business. Ask yourself, will you enjoy spending more of your time on marketing? Or, do you want to be in full control of your inventory and meticulously design your packaging?
However, while navigating dropshipping can be difficult, it could also help you reap rewards and scale fast.
Hopefully, this beginner’s guide has not only helped answer ‘what is dropshipping?’ but also shed some light on alternative business models. For more guides, see the Dojo blog.